March 31, 2020

Coronavirus Considerations for Property Owners, Developers and Managers

As the coronavirus progresses through the world and our respective communities, it presents both challenges and learning opportunities for commercial and industrial property developers and property managers. Here are five things to consider in light of the pandemic.

Force Majeure Clauses

Many contracts contain force majeure provisions, which provide protection from unforeseeable circumstances that prevent a party from fulfillment of a contract. Now is a good time to review such provisions to understand if there is a lease or other agreement that may allow a party out of the contract because of disruption caused by the coronavirus pandemic. It is also a good time to consider the implications of this kind of provision going forward. Is the provision clearly written? Is it ambiguous regarding an event like the pandemic? As with most contract provisions, details and clarity matter.

Exposure for Commercial Property Managers

The pandemic creates unforeseen and atypical exposure and concerns for property managers. If a property remains open, is the manager liable for exposure to the coronavirus for third parties or tenant employees entering the rental property? What about common areas with several tenants? If the manager closes the property without proper basis, is the manager liable to a tenant for damages arising from closure? What is the measure of those damages? Who is responsible for damage to tenant space and property while the rental facility is closed? Today more than at any time in recent memory, understanding these issues requires an understanding of contract and public policy issues and dynamics.

Exposure for Commercial Property Owners

What rights do owners have if rental property is closed by government mandate? Owners may be required to service debt even if the income generated to service that debt has been cut off on public health grounds. What claims and recourse does an owner have? Against whom? A full understanding of an owner’s rights and standing are essential in today’s turbulent environment.

Exposure for Commercial Property Tenants

What rights do tenants have if the government orders closure of their business? Most restaurants have been closed in the last several days. What obligations does a restaurant have to its landlord, suppliers and employees? Are there reasons to retain employees during business closure? Against whom can a tenant bring claims?

Insurance

One area of opportunity and risk for commercial property owners, managers and tenants is insurance. The coronavirus pandemic presents conditions that have not existed in commercial settings and insurance relationships in recent memory. What will carriers permit as claims? Are there ways to influence carriers to provide protection against risks that insureds could never have anticipated? Business interruption coverage is coverage that many landlords and tenants may have considered unnecessary in the past. Certain kinds of policy language may be interpreted to act as coverage of this kind. Given that the legal, legislative and regulatory landscape governing these questions is changing at a breakneck pace, it is important to understand potentially unforeseen options in very difficult economic conditions.

As the number of cases around the world grows, Faegre Drinker’s Coronavirus Resource Center is available to help you understand and assess the legal, regulatory and commercial implications of COVID-19.

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